AMD's Latest Chips Set the Stage for a Stellar Year
(Bloomberg Opinion) -- It’s a worrisome time for semiconductor makers. Supply-chain headaches have rippled across the industry, with chip shortages causing disruptions at big customers such as Ford Motor Co. and Samsung Electronics Co. Geopolitical tensions and the specter of rising interest rates also loom. These are certainly pressing concerns — but what may get lost amid these immediate problems are clear signs of increasing business momentum at one of the industry’s biggest overachievers: Advanced Micro Devices Inc.
AMD has already made big inroads into its primary rival Intel Corp.’s market lead in recent years, thanks to its top-performing “Zen” chip architecture. But last week’s release of its EPYC 7003 server processors may prove to be an even bigger game-changer. With third-party reviewers saying the new chips offer more than double the performance of Intel’s best, AMD’s share gains in the lucrative, high-profit margin server category are likely to accelerate this year, leading to a significant earnings boost above expectations.
It is not just servers, AMD’s other businesses are also booming, from traditional PCs to gaming. Earlier this month, regional custom-PC seller Puget Systems revealed that more than half of the PCs it ships now use AMD processors, up from less than 10% just a year ago and surpassing Intel. While Puget’s clients are primarily early adopters such as 3D computer animators and engineers, who need the fastest and most powerful hardware, it points to how quickly sales can shift once customers realize the performance disparities. Video games are another area where AMD’s position is strengthening. The company makes the main processor chips for the next-generation consoles from Microsoft Corp. and Sony Corp. that were released last fall. Demand for these devices has been insatiable, with new inventory still instantly selling out. According to research firm NPD Group, U.S. gaming console hardware sales soared 144% in January and 121% in February compared with those in the respective months a year earlier. The rest of 2021 should continue that trend, driving AMD’s chip sales.
What about AMD’s risks from potential chip shortages? The company may be better positioned than its peers. The important thing to remember is the strength of its long-term relationship with its main supplier, Taiwan Semiconductor Manufacturing Co. After Apple Inc., AMD may be TSMC’s most important client, so it is likely to get its orders prioritized. Further, there are clues TSMC has already incorporated a robust capacity allocation for AMD this year. In January, TSMC said its “high-performance computing” segment, where AMD’s business resides, will be a “major growth driver” for the foundry company. Further, AMD Chief Executive Officer Lisa Su said on the company’s most recent earnings call that the company has “good visibility” on the supply situation and expects improvement during the second half of 2021.
Intel isn’t going to sit still of course. Analysts predict another server processor launch from the company soon, but it will still be based on an inferior chipmaking technology so it’s not expected to deliver large performance gains. On Tuesday, Intel’s new CEO Pat Gelsinger is scheduled to give an update on the company’s business and engineering plans. No matter what his strategy entails, it will take years to catch up to AMD-TSMC’s technology leadership.
In the meantime, AMD has an opportunity to take business away from Intel. Last year, AMD generated about $10 billion in revenue — still a tiny fraction compared to Intel’s $78 billion. With far better products up and down its lineup — and competing for the exact same customer — AMD has a good shot at significantly narrowing that gap.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.
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